What is a Hold Harmless Agreement?
A hold harmless agreement is a contract between two parties, in which one party agrees to not hold the other party liable or responsible for any possible future claim or demand. This essentially means that the party signing the agreement or document cannot, at a future date, sue the other party. From a business or professional perspective, a hold harmless agreement is meant to protect one party from any harm that the other party could cause them. If you are renting to another person, they could be liable for any damages that happen on your property, even if it was not intentional . However, when the lease agreement includes a hold harmless clause or used as an addendum to the lease, an Ohio hold harmless clause ensures the all-encompassing liability for the property damages would fall on the tenant, and the landlord could avoid the lawsuit. Another good example of this would be in purchasing insurance. When a business is buying insurance for their employees, the employee may agree to not hold the insurance company liable for injuries that happen at work, no matter what the circumstances. Or consider a personal injury settlement where the parties agree that the settlement will completely satisfy any and all claims that the injured party has against other parties.
Legal Requirements in Ohio
In addition to the general requirements for enforceability and public policy considerations, particular rules and elements apply when drafting a hold harmless agreement in Ohio. In Ohio, several statutes apply to hold harmless agreements, with the most applicable being Ohio Rev. Code Ann. § 2305.31 and Ohio Rev. Code Ann. § 5302.30. Section 2305.31 applies to hold harmless agreements between contractors and property owners, and § 5302.30 applies to hold harmless agreements between homeowners and subcontractors. Ohio Rev. Code Ann. § 2305.31 provides that a contractor is not liable for damages relating to an improvement to real property if the contractor conveys the property to another before the expiration of 10 years after substantial completion of the improvement. However, Ohio Rev. Code Ann. § 2305.31 (B) states: any provision, clause, covenant, or understanding in a construction contract, subcontract, preconstruction agreement, design contract, design-build contract, or other agreement . . . purporting to indemnify a promissor from liability for damages arising out of bodily injury to person or property or for contributing to the settlement of a claim or damages arising out of bodily injury to person or property through settlement payment of a claim or damages arising out of bodily injury to person or property, caused by the promissor’s own negligence, is against public policy and is void and unenforceable, whether the conduct is characterized as negligence or an omission of a criminal, wrongful, negligent, stricter, statutory, intentional, or other standard of conduct. When such provision, clause, covenant, or understanding is contained in the construction contract, subcontract, preconstruction agreement, design contract, design-build contract, or other agreement described in division (B) of Ohio Rev. Code Ann. § 2305.31, the provision, clause, covenant, or understanding shall be unenforceable. Because Ohio Rev. Code Ann. § 2305.31 applies explicitly to turn-key construction contracts, it may not apply to a rental agreement or lease. Because of this, it may not prevent a property owner from validly executing a hold harmless agreement with its tenant. Unlike §§ 2305.31, which applies to a ten-year period, § 5302.30 applies more generically to hold harmless agreements entered into with a homeowner and generally limits liability without an expiration period, and therefore appears to be the more likely statute to be relied upon to challenge hold harmless agreements with tenants. Ohio Rev. Code Ann. § 5302.30 provides that the owner may enter into an oral or written agreement with a subcontractor, or enter into a written agreement with a contractor which includes a subcontractor, holding the owner harmless from damages alleged to occur from the negligence of the subcontractor in constructing or repairing a residence. The statute also states that the agreement may indemnify the owner for all damages alleged to arise from the negligence of the subcontractor. The Ohio Supreme Court stated in Frederick v. S. Franklin Inv. Corp., 173 Ohio St. 121, 181 N.E.2d 42 (1962) that R.C. § 5302.30 was correctly explained and applied in a trial court, and that "Ohio has enacted § 5302.30 as an expression of public policy." The Frederick court then went on to uphold a hold harmless agreement between the owner and the general contractor because the agreement expressly excluded the general contractor’s own negligence. However, the court, in dicta, stated that had the hold harmless agreement not been limited to damages resulting from damages of a subcontractor, it would have been in violation of public policy.
Types of Hold Harmless Agreements
Types of Hold Harmless Agreements in Ohio
Hold harmless agreements can take a variety of forms, generally falling into two types: reciprocal and non-reciprocal. Reciprocal is commonly referred to as unilateral or one-way. Another term for non-reciprocal is mutual. A non-reciprocal agreement typically aims at protecting one party against a personal injury claim that the other has not assumed by contract and to which the former is directly exposed by virtue of its contractual relationship.
For example, a construction contract between the city of Dublin and its contractor may require the contractor to indemnify and hold the city harmless for any personal injury claims arising out of the contractor’s performance of its work. In this case, the contractor is the indemnifying party and the city is the indemnified party. If there were no hold harmless agreement, the city would be exposed to liability for any personal injury claims arising out of the contractor’s performance of its work, and it would have no right of indemnification.
Some indemnification agreements are mutual; however, the best approach often is to draft the agreement in a unilateral format where one party has broad indemnity rights and the other has very limited or no indemnity rights. This is especially true when the indemnified party is an indemnitee in a construction contract and the indemnifying party has no corresponding obligations to obtain subcontract or sub-subcontractor hold harmless agreements from every subcontractor and sub-subcontractor. This may also be true if the indemnified party is a business entity and the indemnifying party is a sole proprietorship, where the business entity has greater resources, is better able to protect itself, and can spread its risks by requiring its many contractors and subcontractors to assume liability for its protection.
Preparing the Agreement
Caution is warranted when preparing hold harmless agreements in Ohio. Often, it is not enough to simply have one party agree to "hold harmless" another, or even both, for "any and all claims." More specific language is generally preferable. For example, express language indicating which of the parties is indemnifying the others and specifically mentioning types of damages can narrow the application of the agreement.
"Without holding harmless language, the indemnification language in a development agreement could merely be a promise to pay and would not create a right of recovery by a third party . "
In addition, language that is too broad may not be enforceable. Some cases have held that an indemnification agreement must be clear and will not be enforced if it is overly broad. Indeed, in one case, the Ohio Supreme Court struck down an indemnification agreement because it was overly broad. So care should be taken to tailor the language to apply to damages that are foreseeable and intended to be covered by the agreement.
Benefits and Drawbacks
Hold harmless agreements can be mutually beneficial ways to transfer risk. However, they are not without their potential downsides.
The Benefits
Many times, the benefits offered by a hold harmless agreement far outweigh the risks, so parties enter into a hold harmless agreement as a matter of routine. For example, your neighbor wants to hire you to install air conditioning in their new home. Their only concern is that it does not damage their hardwood floors. They do not really care if you fall off a ladder and get injured, but you don’t want to have to pay for their floors if you do. You both sign an agreement stating that if you get injured while installing the a/c, the neighbor will not hold you responsible unless it’s intentional or reckless. If you get hurt, the hold harmless clause saves you from liability for your neighbor’s floors. If you are at fault, the clause saves your neighbor more than just the cost of his floors; it also saves him the time and effort to sue you.
As a contractor, your resources may be limited. A hold harmless agreement with an owner who is well-insured may help you avoid costly litigation.
The Risks
In Ohio, courts have invalidated hold harmless clauses when they are too broad. Courts will not enforce an indemnification provision that purports to reach claims resulting from a party’s own negligence or willful misconduct. Hold harmless agreements that fail to adequately disclaim coverage of the owner’s own negligence will not be enforced. In addition to invalidation, a party that agrees to be responsible for injuring another may be held liable for all of the injuries that result, even if it was not directly at fault. For example, hold harmless agreements can have a chilling effect on safety. If contractors are too quick to enter into agreements that waive or transfer risk, then contractors may feel less pressure to take extra precautions when working on a project, even when it is reasonable to do so.
How to Manage Risk
Ohio law does not require hold harmless clauses in construction contracts. You may decide to leave them out of your agreements if each party will be able to bear the burden of their own costs of performance without going bankrupt. If hold harmless provisions are part of your risk management strategy, then the following steps may help you: If you plan to offer hold harmless agreements to owners, then you may decide to limit the scope to property damage caused by your negligent performance of work on the project. In that case, your client will be responsible for any and all losses that result from non-negligent conduct.
Common Inquiries
Frequently Asked Questions Regarding Hold Harmless Agreements in Ohio
Q: What is a hold harmless agreement?
A: A hold harmless agreement is a form of indemnity agreement to which one party has agreed to assume the responsibility for the liability of another party, typically as payment for a service.
Q: Do hold harmless agreements need to be in writing?
A: While the majority of hold harmless agreements are in writing, as noted above we do enter into some oral contracts on a daily basis. Even if a contract is oral, it can still be deemed to exist and be enforced by a court.
Q: Are hold harmless provisions applicable in all states?
A: No, not all states recognize hold harmless agreements . We have previously blogged about different state’s perspectives on various indemnification agreements, so while you may think you can select the proper forum in which to hear your case, it does not always work out. When you are working with an indemnity or hold harmless agreement, you should understand the law applicable to that agreement in the state where the work is being performed.
Q: Can I include a hold harmless provision in any contract?
A: As previously discussed, Ohio law does not permit indemnification in furtherance of a claim brought by that indemnifying party. You cannot avoid liability for yourself by indemnifying the injured party.
Q: Are hold harmless provisions enforceable in Ohio?
A: Yes, as long as the provisions of the hold harmless agreement are not for your own negligence, the provisions are deemed enforceable.